Canada Housing sells C$5 billion bonds; Scotiabank raises $2.75 billion; bank paper firms

By Cristal Cody

Prospect News, March 15 - Canada Housing Trust tapped the bond markets on Thursday with an offering of C$5 billion of new benchmark five-year bonds, a source said.

The Canadian markets continue to be quiet with many traders and investors out for the next two weeks due to school holiday breaks.

The U.S. investment-grade bond market, however, remains active, and the Bank of Nova Scotia came with a $2.75 billion two-tranche deal on Thursday.

Corporate bonds traded mostly tighter but on light volume over the day, sources said.

The market was "pretty quiet," a trader said.

The Markit CDX Series 17 North American investment-grade index ended the day 1 basis point tighter at a spread of 90 bps.

The bank and financial sector traded about 5 bps tighter on the day, a trader said.

Bank of Nova Scotia's new three- and five-year notes priced late in the day in the U.S. market and were not seen in afternoon trading.

Canadian government bonds drifted lower as U.S. Treasuries closed mostly flat after yields jumped on Wednesday. Canada's 10-year note yield rose 3 bps to 2.2%. The 30-year bond yield closed up 2 bps to 2.73%.

"It reflects a bit of catch-up over the last couple of days," a bond source said. "In yesterday's market, Canada tended to basically outperform relative to U.S. Treasuries. Now, we're seeing a bit of catch-up today and added to the move yesterday, we're coming close to replicating the move yesterday in U.S. Treasuries."

Treasuries sold off on Tuesday and Wednesday following the Federal Reserve's moderately better economic outlook.

Another round of positive U.S. economic data was released on Thursday, including reports from the Federal Reserve Banks in New York and Philadelphia that showed a growth in regional manufacturing.

Canada plans to release manufacturing sales data on Friday.

Canada Housing prices

Canada Housing Trust (Aaa/AAA/DBRS: AAA) priced C$5 billion of 2.05% five-year Canada Mortgage Bonds at 99.912 to yield 2.068% in a Rule 144A-eligible offering on Thursday, according to a bond source.

The series 46 bonds due June 15, 2017 priced at a spread of 39 bps over the Government of Canada benchmark, wider than spread guidance of 37.5 bps. The deal launched on Wednesday.

TD Securities Inc., BMO Capital Markets Corp., RBC Capital Markets Corp. and Merrill Lynch Canada Inc. were the lead managers.

The trust is a unit of Canada Mortgage and Housing Corp., which provides financing, mortgage loan insurance, mortgage-backed securities and housing policy and programs.

Scotiabank taps market

Bank of Nova Scotia sold $2.75 billion of covered bonds (Aaa/AAA/) in two tranches on Thursday, a source close to the trade said.

The $1.25 billion of 1.05% three-year notes sold at 99.912 with a spread of Treasuries plus 52.6 bps.

There was $1.5 billion of 1.75% five-year notes priced at 99.89 with a spread of 69 bps over Treasuries.

The sale was done under Rule 144A and Regulation S.

Bookrunners were Bank of America Merrill Lynch, Barclays Capital Inc., Deutsche Bank Securities Inc., Scotia Capital (USA) Inc. and UBS Securities LLC.

Scotiabank was last in the market with a $2.5 billion deal of 1.95% five-year covered bonds priced at Treasuries plus 109.1 bps on Jan. 20.

The Canadian bank is based in Halifax, N.S.

Andrea Heisinger contributed to this review

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